Target’s newest incubator is a bet on Gen Z

Target wants to get into the minds of teens and college-age students by investing in Generation Z entrepreneurs.

The retailer’s newest incubator focuses solely on supporting companies founded by people in the 18-to-24-year-old cohort, both so Target can find new ways to source talent and better understand the consumer behavior of the next generation. The eight-week program, based in Target’s home city Minneapolis, will focus on socially responsible products and services that target Gen Z preferences and needs. These new offerings could possibly be geared at the digital native nature of the age group, which, according to recent research, could make up for 40 percent of consumers by 2020.

With the twofold focus on Gen Z entrepreneurs and social responsibility, which marketers know is important to the demographic, Target’s making a bet on both emerging workers and customers. The Gen Z-focused program is the fourth incubator the company has launched, and the first specifically geared at 18-to-24-year-olds. In April, the company rolled out Target Takeoff, a development program for emerging beauty brands, and the Target Techstars startup accelerator just wrapped up its third class. Target has also been running a tech accelerator program in India since 2013. For Target, it’s a way to shake up a large organization with new ways of thinking, and to market the company as a partner and employer for a younger audience.

Walmart and Lowe’s are also investing in using development programs for startups. Walmart Labs lets the retailer assess ways to solve problems in areas including consumer and merchant-facing technology, and supply chain issues, while incubator Store No. 8 aims to build products in anticipation of future customer needs. Meanwhile, Lowe’s Labs explores how technologies like AR and VR can enhance customer experiences.

“Maybe they’re struggling as tech companies have the more sexy job offers as people graduate, and they’re doing what they can to bend the culture towards more of a tech focus,” said Andrew Murphy, managing partner of Loup Ventures, a Minneapolis-based venture capital firm that invests in retail technology startups.

According to Target spokeswoman Shandra Tollefson, the retailer doesn’t take any equity stake in the companies at the outset, but Target doesn’t rule that out as a possibility at the end of the program.

“Target realizes that tech isn’t in their DNA, and they want to bring it in from the outside — this is a great way to do that in a way that’s focused on young, fresh ideas,” Murphy said. “It’s less about consumer insights on Gen Z than building different ways to affect their culture internally — they’re developing their products and services in a more tech-focused direction from the inside out.”

The challenge will be to demonstrate results. While incubators let brands test new concepts, the risk Target and all large retailers face is whether the resulting products and services actually address core customer pain points.

“My reaction to [retail incubators] is that a lot of this is innovation for innovation’s sake,” said Forrester principal retail analyst Sucharita Kodali. “Very few of these companies have approached innovation the way Amazon approaches it, which is to look at the customer experience and the points of failure [first] — it may not be the latest whiz-bang technology.”